Finance

Tax Hike On Portland Companies With 'Extreme' CEO Pay

| by Zach Cohen

The Portland city council passed a law that will raise taxes on companies that pay their CEOs more than 100 times what they pay their average employee.

Portland businesses currently pay 2.2 percent of net income in taxes, reports the CBC. The new law tacks on an additional 10 percent on publicly traded companies with "outrageous CEO pay," as city commissioner and bill sponsor Steve Novick tweeted out.

The extra 10 percent applies to companies whose CEO-to-average-employee pay ratio is over 100. If the ratio exceeds 250, the new law slaps on a 25 percent tax.

Novick says that the bill was inspired by similar efforts in Arizona and California. "When I first read about the idea of applying a higher tax rate to companies with extreme ratios of CEO pay to typical worker pay," Novick said, "I thought it was a fascinating idea -- the closest thing I’d seen to a tax on inequality itself."

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A news release on Novick's web page cites the World Bank's former lead economist, Branko Milanovic, currently a professor at NYU: "What I find quite interesting," Milanovic told the Guardian, 'is that it seems [to be] the first tax that targets inequality as such. ... It treats inequality as having a negative externality like taxing carbon emissions."

The new tax is estimated to raise between $2.5 and $3.5 million per year. There are more than 500 publicly traded firms that do business in Portland, including Wells Fargo, Walmart, and General Electric -- all of which, according to the news release, are known for high CEO pay.

Economy-wide, executive compensation has been increasing since at least 2010, reports The New York Times. Then, the median pay for the 200 highest-paid executives at public companies was $9.6 million. It has since more than doubled to $19.3 million in 2015.

A 2014 study by the Economic Policy Institute found that the CEO/worker pay ratio was around 300 in 2013, up from 20 in 1965.

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Thomas Piketty, income inequality scholar and author of "Capital in the Twenty-First Century," says that the Portland tax is a good first step. "This is certainly part of the solution, but the tax surcharge needs to be large enough; the threshold ‘100 times’ should be substantially lowered," he said in an email to The Times.

Sources: CBC, Novick's News Release/The City of Portland, The New York Times, The Guardian / Photo credit: The New York Times

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